Rising Non-performing Loans: 8 Banks’ Provision For Losses Spike 449% To N247bn

With benchmark interest rate at an all time high of 24.75 per cent, banks are beginning to see an upward movement in non-performing loans as their provisioning for credit losses spiked by more than 449 per cent to N247bn in the first quarter of 2024.

The Q1 2024 reports of eight banks released on the Nigerian Exchange show that provisioning for loan losses had spiked from N45.13 billion in the first quarter of 2023 to N247.91 billion as at the end of the first three months of 2024.

According to the data, Guaranty Trust Holding Company, the parent body of GTBank which did not have any impairment charge on its books in the first quarter of last year, recorded a N123.25 billion provisioning for loan losses.

Similarly, Zenith Bank had posted a N55.97 billion impairment charge, a 624 per cent surge compared to N7.73 billion which it set aside for loan losses in the comparable period of 2023. FCMB had also recorded a 361 per cent jump in its impairment charge from N5.14 billion in Q1 2023 to N23.7 billion in Q1 2024.

The impairment charge recorded by Fidelity Bank also rose to N12.36 billion compared to N3.52 billion recorded in the comparable period of last year, while Stanbic IBTC and Access Holdings, provisioning for loan losses rose form N3.28 billion and N18.71 billion in the first quarter of 2023 to N7.1 billion and N22.79 billion in the first three months of 2024.

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Wema Bank had also seen a growth in its impairment charge from N107 million in the first quarter of 2023 to N1.1 billion in Q1, 2024. However, United Bank for Africa had posted a decline in its impairment charge as it posted N1.6 billion in Q1 2024 compared to N6.63 billion which it recorded in the comparable period of 2023.

The spike in loan losses provision is stemmed from the rising interest rate which has made paying back tough for borrowers. With inflation at a 28 year high, the Monetary Policy Committee had raised the benchmark interest rate twice this year to an all-time high of 24.75 per cent sparking protest from borrowers.

Fidelity Bank had noted that the increase in its provisioning for credit losses had been “driven by an increase in the gross size of the portfolio and movements between stages as a result of increases in credit risk and a deterioration in economic conditions.”

Some members of the MPC had at the March 2024 meeting raised concerns over the rising level of non-performing loans in the Nigerian banking industry.

The deputy governor, Financial System Stability of the Central Bank of Nigeria (CBN), Philip Ikeazor, in his personal statement, had raised concerns over the rise in the level of non-performing loans in the Nigerian banking industry.

NPL in the industry had risen by 0.3 per cent to 4.5 per cent, a situation Ikeazor said gives backing to the recapitalisation move by the apex bank, as he noted that, the banking sector has remained resilient with most financial soundness indicators within their regulatory thresholds.

“Despite this, the moderate increase in NPLs and the slight decline in CAR reinforces the importance of recapitalizing the banking system. The imbalance between the exposure of the oil and manufacturing sectors and their poor contribution to growth is worrisome, even as non-performing loans (NPLs) continues to rise.

“Considering their vulnerability to rate hikes, consecutive aggressive tightening will further depress the economy. The pressure point is already manifesting as indicated in the projected contraction of PMI in the industrial sector by 7.1 index points occasioned by rising input cost and low-capacity utilisation,” he pointed out.

Another member of the Monetary Policy Committee(MPC), former director general of the Securities and Exchange Commission (SEC), Lamido Yuguda had also noted the rise in NPL although, he said, it is still within the prudential threshold of five per cent.

Managing director of Arthur Steven Asset Management Limited and former president of the Chartered Institute of Stockbrokers (CIS), Mr. Olatunde Amolegbe, pointed out that, while the hike in benchmark interest rate is to address inflationary pressures., it is expected to have side effects.

According to him, the elevated MPR could elevate borrowing costs for corporations already grappling with substantial FX revaluation losses.  This may lead to an uptick in loan defaults and a rise in Non-Performing Loans (NPLs) for banks, he said.

Chief executive of the Center for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, had stressed the need for the MPC to soften its monetary tightening stance for the time being, saying, “businesses are yet to recover from the shocks of the recent bullish rate hikes. The monetary instruments should be put on pause while fiscal policy tools address supply side factors in the inflation dynamics.”